Qantas takeover in serious jeopardy

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Today Kris Sayce in The Daily Reckoning summarised the world of private equity takeovers more succinctly than I think anyone has over recent weeks, as we have gone through the process of APA’s intended takeover of Qantas.

This is what Kris said: –

Sometimes we just don’t know what to think.  But our occasionally muddled brain must be nothing compared to what those poor, dear little investment bankers must be going through at the moment.

We don’t know, because we’ve never had the pleasure of being an investment banker, but we can imagine that although they receive a reasonably tasty salary, the big bucks come into play with bonuses for completing massively expensive, impressive and important merger, acquisition and consulting deals.

Just like any salesman – and trust us, investment bankers are salespeople – there is only so much enjoyment that the ‘thrill’ of the chase will bring.  It’s all very well for someone to say “I love sales”, but if the customer doesn’t say yes and sign on the dotted line then all the preparation and planning and presentations and schmoozing will count for naught.

For an investment banker it can be even harder for them to retain control over the ’sale’ if they are not ultimately dealing with the owners of the company.  And this we think is where the problem seems to lie.  Bankers will spend thousands, nay tens of thousands, or even hundreds of thousands, pitching the idea to the board of a particular company.

The problem is that the board isn’t the decision maker.  It is no more than an influencer – and depending on how the company has performed and depending on whether the board has maintained good relations with the owners of the company (shareholders), the owners will decide whether or not to accept or reject the advice from them.

For most salespeople they merely have to present an idea to a board, or to a particular decision maker within a company, or to an individual, and within a matter of minutes, days, weeks, or maybe months, a decision is made, the sale is closed and the salesperson collects their commission.

Obviously this is not the same with a takeover of a publicly listed company where the owners number in their thousands, or is that tens of thousands.  The Bankers seem to have done their job in convincing Geoff Dixon and Margaret Jackson that the takeover of Qantas by Airline Partners Australia at AUD$5.45 per share is a good idea.

The Bankers have done well to convince the Rinker board that Cemex’s revised offer now makes sense.

However, it seems as though those pesky shareholders are starting to think for themselves.  They are now starting to ask questions that perhaps shareholders 10, 20 or 30 years ago wouldn’t have asked.  They are also starting to ask themselves whether they should be selling something which someone else is so keen to buy – perhaps they’ll hold onto it instead.

Shareholders are also thinking longer term.  Something which many fund managers are reluctant to do.  Even though fund managers are typically looking at funds for people’s retirement they are keen to maximise returns over the short-term in order to boost receipts from new contributions.

Why wait five years to get a 20% return on an investment when we can take 15% now?

Therefore it is not surprising that we heard on the radio on the way home last night that acceptances by Qantas shareholders had actually fallen over the past week by 5% putting the whole takeover in serious jeopardy, even with the lower acceptance rate required.

And it was also of little surprise to read that due to the better than expected results from Rinker, shareholders may prefer to hold out for a potentially sweetened deal from Cemex or for an offer from elsewhere.

We can only hope that a deal comes through for the investment bankers out there before they are subjected to the ultimate humiliation of a Geldof/Bono fundraiser.

Kris Sayce
The Daily Reckoning Australia

Report by The Mole from The Daily Reckoning

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